Opinion: Caution - Choice can be hazardous to your financial health

Want to feel young again?   There’s nothing that will make you feel like a child faster than being treated like one.  But it’s not your old Uncle Fred who wants to limit your choice of ice cream cones to shades of vanilla. It’s Uncle Fed, and he wants to narrow your financial options so you don't stumble into fiscal difficulty.  The White House and many in Congress have taken a look at the economic meltdown in this country and decided we cannot be trusted to make financial decisions for ourselves. The answer? Vanilla, vanilla, or vanilla... take your pick. The need to limit our choices is behind the formation of a proposed mammoth watchdog agency, which will be known as the Consumer Finance  Protection Agency or CFPA.

If the legislation is enacted, the CFPA will be enormous, taking control over areas such as mortgages, credit cards, payday loans, saving and checking accounts, investments, and more. And, it will strip away and consolidate power from other government agencies. Leading Democrats in Congress have stated they will force this plan into law by August 3rd, when Congress is scheduled to begin its month-long vacation.  Will our representatives have time to read and understand this plan, unlike the gigantic Economic Stimulus Plan that was rushed through voting in the middle of the night, quite literally before the ink was dry?   Or will members of Congress have to forfeit some of their vacation days to hammer out the details?
 
Here's how the support and opposition seem to be lining up.
 
Support
 
Most - though not all - Democrats favor the President's plan.  Back in June, Chris Dodd, U.S. senator from Connecticut and chairman of the Senate Banking Committee, sounded the alarm, urging the creation of a Consumer Finance Protection Agency, independent of other existing agencies.
 
"If the financial crisis has proven one thing, it is that protecting the financial well-being of American consumers should be our first priority as we work to bring our financial regulatory structure into the 21st century," Dodd said. 
 
“It is unbelievable that some of the same irresponsible actors that helped create the current financial mess would argue that we are doing too much for consumers." Good point, though not exactly the way Dodd meant it. Dodd has been the number one recipient of campaign contributions from the failed Fannie Mae and Freddie Mac (followed by John Kerry, Barack Obama, and Hillary Clinton).  All four actively opposed efforts to reform the regulation of these agencies, according to the Washington Post.   The Post also quotes Dodd as urging President Bush to "immediately reconsider his ill-advised" reform proposals, which included setting up an independent regulator of Fannie and Freddie... a proposal Dodd called "inane." The Clinton Administration also urged reform of the mortgage industry, a move which Dodd also resisted.
 
Barney Frank, the chairman of the House Financial Services Committee favors the CFPA. He said,
 
“I am confident that we will produce a bill that will provide greater consumer protections while in no way burdening the legitimate activities of responsible banking," addressing one of the concerns expressed by the banking community.  He told realtors that he wants something in place so that "you cannot give someone a loan that they cannot afford to pay back."   Obviously nobody should get a loan they cannot afford.  But where was this common sense approach when Barney Frank was videotaped, attempting to coerce the mortgage industry into making loans to lower income segments of the economy?  In addition, U.S. News & World Report mentions indiscretions committed by Frank that would've gotten most people fired, and quotes Frank in his role as an overseer of Fannie Mae as saying, “I want to roll the dice a little bit more in this situation towards subsidized housing.” Roll the dice we did.
 
Michael Barr, assistant treasury secretary, doubts that the existing system of consumer protection can be mended enough to take on higher levels of responsibility.
 
“Our basic view is that the current system is fundamentally broken. We need to have one agency for one marketplace with one mission,”
 
Consumer groups support the proposed CFPA, calling it long overdue. 
 
·         “It targets the most significant underlying causes of the massive regulatory failures that have harmed millions of Americans,” says Travis Plunkett, legislative director for the Consumer Federation of America.
·         And Ed Mierzwinski, program director for the U.S. Public Interest Research Group said "We regulate toasters to make sure they don't catch fire.  We're not banning toasters. We're simply saying they have to be safe."
 
Collectively, supporters of the CFPA call themselves Americans for Financial Reform.  This group includes nearly 200 consumer, labor and civil rights organizations.  They have formed a Web site to help push through the new agency and have sponsored protests at various banks and chambers of commerce to express their views. 
 
Opposition
 
Financial service groups and bankers have warned Congress that the new agency would add another layer of government regulation, raise costs, stifle innovation, and curtail consumer choice. While they admit that change is clearly needed, they would like to see bank supervision strengthened in order to protect consumers.  Industry representatives say that regulators need to make sure that underwriting and capital levels are adequate to provide protection.
 
CEO and president of the American Bankers Association, Edward Yingling, said the CFPA "would appear to be the most powerful agency ever created. This proposal will chill efforts to innovate and respond to consumer demand for beneficial products and services."
 
The American Financial Services Association, a trade group representing 350 consumer and commercial financial companies, submitted testimony to Barney Frank's committee, stating that the idea of a "government-run entity dictating which personal-finance products can - or cannot - be made available in the marketplace is troubling."
 
"So is the notion of limited product access for certain borrowers, such as those considered to be subprime," the group said.
 
It's no surprise that Republicans in and out of Congress oppose the formation of a new giant agency that curtails personal freedom.
 
The top conservative on the Senate Banking, Housing and Urban Affairs Committee, Richard Shelby of Alabama, said, “I do not accept the premise that the remedy is to deny consumers decision making power altogether.” He added, “I think this would be a very significant and paternalistic departure from the notions of liberty and personal responsibility that have previously guided our regulatory efforts.” 
 
U.S. Rep. Spencer Bachus  (R-AL) said that the CFPA "appears to be premised on the idea that Washington is better at making financial decisions for all Americans than leaving that choice up [to individuals]. This would be a hard notion to support, since few of us will agree that Washington can point to any recent history under any administration that indicates it is capable of thrift, wisdom, or efficiency. "
 
The Federal Trade Commission (FTC) opposes the new agency, which, if formed, will strip authority away from the FTC. Currently the Federal Trade Commission oversees consumer protection issues, such as unfair and deceptive advertising, identity theft, and telemarketing. It is able to enforce actions against non-bank financial entities, like finance companies and mortgage brokers, though it does not have authority concerning banks, credit unions, and savings and loans.   Some have suggested a better plan would be to extend the reach of the FTC to banking institutions.
 
Also in opposition to the CFPA are some key Democrats. Rep. John D. Dingell (D-MI) was the chairmen of the Energy and Commerce Committee for 27 years until last November.  He views Obama's proposal as an "unwarranted reassignment of the FTC's authority" and the decision to give the bill to Financial Services Committee a raid on the jurisdiction of the Energy and Commerce Committee.  "I have significant concerns about these plans," he added, especially because of the stripping of power from the Federal Trade Commission. Under Dingell’s leadership, the Energy and Commerce Committee had oversight of the FTC.
 
Democrat Bobby Rush of Illinois argues that the CFPA will not do enough to help consumers in the short run.  Rush is among those who would like to see the Federal Trade Commission's authority to regulate financial products strengthened.
 
As August 3rd approaches, the opposition is striving to make their voices heard against a majority that supports the formation of a giant new agency.  The current policy of pushing legislation through Congress before legislators have had the time to read and analyze the fine points resulted in the passage of the Economic Stimulus Bill last February. Many loopholes and inconsistencies were later discovered in that legislation, features that might have been addressed and resolved had members of Congress insisted on having time to read, discuss, and revise the wording of the bill.
 

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